David Meyer, chairman and CEO of Titan Machinery, headquartered in Fargo, N.D., participated in a May 6 conference call hosted by JP Morgan North America Equity Research to review the latest outlook for agriculture.
With 65 dealer locations, Titan is one of the few publicly held and largest farm equipment dealership groups in North America. Ag Equipment Intelligence also participated in the call as a presenter.
Following are excerpts from Meyer's presentation.
"What everyone needs to remember is that 2008 was an exceptional year, and a blip that we're not going to see on a consistent basis. But if you look at the projected revenue for growers, it's well above a 5-year trend line. While uncertainty still persists, growers are pretty optimistic right now.
"I spoke to one farmer the other day and he said, 'I've been farming for 30 years and I've sold corn for over $4 only 3 times my entire life.' So right now, farmers are generally happy with the state of the commodity markets, where their cost structures are and their ability to make money in the current environment.
"Customer balance sheets are in the best shape they've ever been, and growers are paying down debt. They still remember the '80s, and they've focused on getting their financial house in order. Interest rates are as low as they've ever been right now, and credit is available to farmers. The local banks, the regional banks, the farm credit service groups are competing for the farmer's business. Agriculture is probably the strongest sector in the economy from a lending standpoint.
"Section 179, which makes $250,000 depreciation available to farmers — as well as the 50% bonus depreciation under the American Recovery and Investment Act of 2009 — will drive business this year because there was a lot of grain sales that were deferred into 2009, and farmers will be looking for the tax breaks. Another thing that we think will drive sales this year is the change in the depreciation cycle from 7 to 5 years on certain ag equipment.
"If you look at the industry sales for the last 4 months, it's been strong in 4WD and 100-plus horsepower tractors, and combines. We believe these products will remain strong. We're also seeing some aggressiveness from the manufacturers, so we could also see some pricing advantages that growers didn't see last year.
"Last year, farm equipment dealers were turning down business because of lack of new equipment. This doesn't look to be the situation this year, as a significant amount of equipment production will come back to North America from South America and the former Soviet countries. This could create a scenario in North America in which equipment manufacturers will compete harder for market share.
"Some growers that may have checked out of the market last year because of equipment availability issues are going to be back in 2009. Coupled with dropping steel prices that may lower equipment cost and generally lower input costs for farmers, we think we could see a strong finish to the year.
"It still won't be like 2008, but we believe we'll see the return to a more traditional, normal cycle in 2009 than we've experienced recently. With all of the bad press and financial uncertainty, we expect to see a lot of the growers wait until their crop starts coming up to see what the markets are and where commodity prices stand.
"With these factors in mind, equipment sales in the third and fourth quarter could be much stronger than the first and second quarter of the year. Used equipment values are pretty much at the levels we had last year and we don't see any major shifts, especially on the bigger equipment. Our store managers and sales force are expressing a lot of optimism for the rest of 2009."